>Are you puzzled when you hear that there will be tax increases in the future? Do you have a good idea of how that really impacts you and your family? And what about this “tax the wealthy” idea, what does it all mean?
I am going to outline the current 2010 Tax schedules that may help you understand more.
If you are a single taxpayer in the US and make under $8,375 you will pay 10% federal income tax
When you income is above $8,375 but under $34,000 you will pay 15%.
$34,000 to $82,400 is at 25%
$82,400 to $171,850 is 28%
$171,850 to $373,650 is 33%
A married couple file joint returns who make under $16,750 are at the 10% bracket
416,750 to $68,000 is at 15%
$68,000 to $137,300 is at 25%
$137,300 to $209,250 is 28%
$209,250 to $373,650 is 33%
People who make the average income in a community are in the 25% federal tax bracket, these figures do not include the state and local tax figures.
What can we do to have more money when we need it instead of having Uncle Sam tell us how much he wants to take? As you can see from the figures above a 2%-3% increase across the board brings in substantial revenue to the government.
Assume a married couple earning $68,000 of taxable income. They give uncle same an additional $1360 just from a meager 2% increase. A couple earning $150,000 will pay $3000. That amount does impact us today but now consider the next example.
A married couple age 35 puts $6,000 in a 401k that is invested in mutual funds. The $6000 grows to $250,000 when they reach retirement age 65. When they draw the money out of they fund assuming there is no more changes in the tax rates they could be paying 17% federal income tax on their withdrawals. They need $20,000 annual to live on. That is $3400 of tax on that money alone. And in 12.5 years the money is gone assuming no additional growth.
What if the couple paid tax on the $6,000 today and it grew to the same $250,000 level at retirement. The same $20,000 is drawn out of the account but depending on how they planned for the retirement years the tax owed is only on the growth and not the whole amount, or there may be no tax at all.
Would it make sense for this couple to pay tax on the $250,000 at the future tax rates? Would it be better for them to pay tax on the $70,000 growth or possibly no tax at all?
I am not a tax adviser but I do know of programs that can lessen the blow that the federal government can impose on your retirement account. To learn more let me know, Your comments are greatly appreciated